Synapse and Clean Virginia outline design rules for effective multi‑year rate plans

Melissa Whited of Synapse Energy Economics presented a framework for designing multiyear rate plans (MRPs) and warned that poor design can turn MRPs into broad trackers that shift risk to customers without producing cost savings.

"A poorly designed MRP only allows utilities to recover costs more quickly without providing cost containment incentives," Whited said. She emphasized that design elements must be considered together: what costs the MRP includes; how revenues are escalated between rate cases; whether reconciliation to actual costs occurs; the structure of any earnings‑sharing mechanism; and the length of the stay‑out period.

Synapse's recommendations for a Virginia‑focused MRP - Include the bulk of utility costs in the revenue requirement covered by the MRP so the utility shares the upside and downside of cost outcomes. The more costs are left in trackers, the weaker the cost containment incentive. - Prefer externally indexed attrition relief mechanisms to utility cost forecasts. External indexes reduce information asymmetry and the opportunity for inflated forecasts. - Avoid reconciliation mechanisms that automatically true up revenues to actual costs; reconciliations remove incentives for utilities to constrain spending. - Tailor earnings‑sharing mechanisms so customers receive protection against excessive utility overearnings while preserving enough upside for utilities to pursue efficient cost reductions. - Choose a stay‑out period that balances incentives and risk — typically three to five years — and consider efficiency carryover mechanisms that allow utilities to retain part of cost savings into the next rate period.

Synapse illustrated risks with Maryland's experience, where annual revenue requirements set from forecasts plus reconciliation produced sustained annual rate increases and weakened cost controls. "In Maryland... annual average rate increases of about 6% each year" were presented as a cautionary example where a plan functioned more like a broad tracker than a cap‑and‑incentive MRP.

Evaluation criteria: Whited proposed that regulators should test any MRP design against questions including whether it reduces information asymmetry, allocates risk to management where appropriate, preserves core service quality (for example reliability), advances policy goals such as decarbonization and DER integration, and substantively reduces administrative burden rather than merely changing docket labels.

Questions and follow‑up: Stakeholders asked whether existing Virginia rate adjustment clauses (trackers) could be folded into an MRP and how MRPs might address rapid demand growth from data centers. Whited said trackers could be incorporated, with options to use either utility forecasts or external indices for revenue escalation, but cautioned that expanding reconciliation or leaving most costs as trackers would undermine the plan's incentives. On data‑center related load growth she noted MRPs can encourage utilities to better evaluate demand‑side solutions and non‑wires alternatives but are not a standalone fix.

Ending: Synapse recommended building robust reporting and oversight around any MRP and using management audits, data dashboards and refined reporting metrics to verify whether the plan achieves affordability, reliability and policy goals.